The tech industry has long touted how ubiquitous connectivity, flashy gadgets and big data can improve people’s lives. The novel coronavirus epidemic is putting that bold promise to the test.

Health officials across Asia-Pacific, home to the first waves of virus contagion, have sought to repurpose existing technology to combat the fast-spreading virus. They are using smartphone-location tracking to piece together movements of suspected cases, developing government-run apps to monitor individuals’ health and keeping an eye on people’s temperature in the street with thermal goggles.

These new responses supplement traditional tactics such as quarantining sick people and canceling mass public events. But the tech-savvy tactics have yet to demonstrate broadly whether they are more game-changer than gimmick. Still, countries elsewhere might look to these solutions as the epidemic spreads.

The global number of confirmed coronavirus cases rose above 110,000 on Monday, according to data compiled by Johns Hopkins University, with infections found in 108 countries and regions.

In South Korea, the country hit hardest by the virus after China and Italy, the government rolled out a “Self-Quarantine Safety Protection” tracking app to keep digital eyeballs on the roughly 30,000 people officials told to stay home for two weeks. If a person brings their phone out of the permitted area, a mobile alert gets beamed to the individual and their government case officer.

In Singapore, a Southeast Asian country hit in the early stages of the virus outbreak, health officials are asking citizens to monitor their own movements with the QR code, the black-and-white bar code used for mobile payments. A scan of these codes, found in taxis, office lobbies, tourist attractions and colleges, bring people to a webpage where they are asked to input their names, contact details and on occasion declare their health status. The voluntary scans allow authorities to reverse engineer a citizens’ whereabouts in case they fall ill or come into contact with a patient.

In Singapore’s Nanyang Technological University, where students, staff and visitors scan such bar codes to leave a digital trail of the locations they visit in the university, the data helped the university probe whether any of their 33,000 students had come into contact with a cleaning contractor who worked in the school after that person was diagnosed with Covid-19, said Tan Aik Na, a senior vice president at the university.

The system has limits. Claudia Thong, a 21-year-old Singapore university student, scans QR codes pasted on the front doors and interiors of classrooms each time she attends lessons. Some students, however, can’t be bothered to scan the codes, she said. Faculty and staff have been asked to remind their students and guests to perform the QR code check-in, the university said in a statement.

Australia’s health department directs worried citizens to a virtual assistant named “Sam.” But inquiries for “coronavirus” go unrecognized, with the site suggesting the correct spelling is the two-word, “corona virus.” A follow-up question about anxieties relating to “corona virus” produced suggestions that had nothing to do with the respiratory illness.

The chatbot will soon be updated to refer people to Covid-19 resources, an Australian health-department spokesman said.

In China, where the largest Covid-19 outbreak has occurred, cities have deployed a variety of eye-catching technologies to diagnose and contain illness. Through measures such as social distancing and isolation, China has managed to limit the outbreak mostly to Hubei province, where the infectious disease emerged and where the majority of cases have occurred.

Unmanned aerial vehicles, typically used to spot forest fires or for police surveillance, can now scan crowds in China and spot someone hundreds of feet away running a fever, said Kellen Tse, deputy general manager for Shenzhen Smart Drone UAV Co., a drone company working with two Chinese provinces. The drone, which uses thermal imaging, sends alerts about those unwell to on-the-ground officials.

“China is unlike other countries,’ Mr. Tse said. “We have a large population, that’s why we’ve turned to technology to be more efficient.”

In Shanghai, digital devices are attached to the doors of those sequestered, according to the city’s state-television channel. People are allowed to go out to empty their trash and pick up deliveries, but unauthorized door movements trigger an alarm to the neighborhood police station, a policewoman told the broadcaster in an interview.

Chinese technology firm Baidu Inc. said this month that it helped develop an algorithm for Beijing subway officials to single out commuters not wearing masks. The image-recognition algorithm, which Baidu developed and tested seven days after a request from the city’s metro administration, runs on the video feeds from subway cameras and flags individuals without a mask or who don’t wear one properly.

Shenzhen, China’s tech-manufacturing center, requests that drivers entering the city scan a QR code and leave their contact details and travel history. Police officers wear thermal helmets and goggles to identify pedestrians who may be unwell, the Shenzhen government said on social media.

But the new-age tactics have their limitations. Commercial drones can only fly for about 20 minutes before needing a lengthy recharge, and the tech-heavy defenses are expensive, said Peter Fuhrman, a Shenzhen resident and chairman of China First Capital, a boutique investment bank. He credits the conventional response of the masses of volunteers and paid monitors deployed in Chinese neighborhoods with thwarting the virus.

“Fittingly, people, not machines, made all the difference here,” said Mr. Fuhrman, who has stayed in Shenzhen since the country’s outbreak began in January.

In South Korea’s hard-hit city of Daegu, private drone companies have been deployed to help disinfect public places at the local government’s request. A single drone can load around 2.5 gallons of disinfectant and spray an area of up to 105,000 square feet—or about the size of a typical Walmart store.

“It takes about 10 to 12 minutes to use it all up,” a Daegu city official said.

I’ve been here in Shenzhen, my adopted hometown, continuously from the start of the Coronavirus epidemic. While this city and the country are still confronting a monumental crisis and short-term economic uncertainty, the worst seems to be behind us. I want to say how grateful and inspired I am by the bravery, collective will and purpose, endurance and resolve of the Chinese people and its government. We fight and we prevail together

When John Zhao sealed the £900m takeover of the UK’s PizzaExpress in 2014 he burnished his reputation as a pioneer in China’s private equity industry. Two years later Hony Capital, his buyout firm, ploughed money into WeWork as the New York shared-office provider set its sights on an aggressive expansion in China.

Both deals shared a simple premise: take well-known western brands to China and they will flourish. “We have capital; we have a huge market to give access to,” Mr Zhao said shortly after the capture of PizzaExpress, which set a record for a Chinese buyout deal in the UK.

The acquisition was one of a wave of Chinese private equity investments over the past decade but few firms were as ambitious as Hony in their targets. Spun out of state-backed Legend Holdings in 2003, Hony shot to prominence through a series of restructurings of other state-owned groups. As it grew, so did its appetite for higher-profile, cross-border investments.

However, almost two decades on, Hony’s breezy confidence that China’s increasingly wealthy middle class would be ready-made consumers of all western brands has proved misplaced.

PizzaExpress restaurant openings in China have lagged behind an ambitious goal while local, lowercost competitors have lured customers away. Confidence that middle class would eat up imported names such as PizzaExpress prove misplaced.

This lacklustre start in China, combined with rising costs and a slowing casual dining market in the UK, left PizzaExpress with a £1.1bn debt pile that has set the scene for a restructuring battle between Hony and other bondholders.

After a calamitous 2019 in which WeWork was rescued by Japan’s SoftBank, its biggest backer, the New York-based company has ditched its leasing model in many cities, laid off thousands of staff and struggled with a particularly poor performance in China.

“The ‘can’t-miss’ strategy continues to do just that,” said Peter Fuhrman, chairman and chief executive at Shenzhen-based investment bank China First Capital. “Chinese investors and corporates have mainly fizzled when buying and localising western consumer brands.”

Other Hony investments — including the Beijing-based bike-sharing business Ofo, which collapsed in late 2018 — have soured, causing competitors to rethink importing western brands to China.

Chinese business history is littered with cases of western multinationals making the opposite mistake. UK retailer Marks and Spencer closed its Shanghai stores in 2017 after its combination of clothing and imported food confused local shoppers. US electronics retailer Best Buy retreated from China in 2014 after struggling to compete with cheaper domestic competitors.

But Chinese private equity groups appeared undeterred. They raised $230bn of capital between 2009 and 2014, according to investment bank DC Advisory.

Nanjing-based Sanpower largely flopped with its buyout of high-end retailer House of Fraser in 2014 and its failed attempt to expand the UK retailer across China. Bright Food, the state-owned Chinese group that bought a 60 per cent stake in Weetabix in 2012, failed to make the UK breakfast dish popular in China and eventually had to sell the brand in 2017.

“Four years ago everyone thought [buying foreign brands and bringing them to China] was the best thesis — but a lot of people got burnt,” said Kiki Yang, the partner leading Bain & Co’s Greater China private equity practice. “It’s not easy to bring something with no brand awareness to China. In reality, the success rate is very low.”

People who know Mr Zhao have said he was one of the first serious Chinese investors to have a solid grounding in the way deals were done in the US while also enjoying deep ties to state-owned groups, putting him in an enviable position at the advent of the Chinese private equity industry.

In its early days, that helped Hony become a rare channel connecting investors such as Goldman Sachs and Singapore’s Temasek with lucrative state deals that were otherwise inaccessible to foreign capital.

The PizzaExpress deal was a turning point for Hony and
other investors in the sector.

By 2014, the group had completed several successful cross-border deals, including an investment in Italian concrete producer Cifa. But the takeover of a popular British restaurant chain won instant global attention for Hony and Mr Zhao, who had spent most of the 1990s working at Silicon Valley technology companies such as Vadem and Infolio.

Hony’s investment in PizzaExpress came just as the UK’s casual dining market began to suffer from oversupply. It was also beginning to face stronger competition from local restaurants in China, a sign the UK brand name meant little to many Chinese diners.

PizzaExpress originally intended to open 200 outlets over a five-year period. So far it has launched about a dozen restaurants in the mainland, giving it a total of about 38, according to its website. In its annual results in April, the chain admitted it had “experienced challenges in China as we face intensifying competition from local brands”.

Without the promised growth in China to cushion the decline in the UK market, PizzaExpress has been pushed towards a debt restructuring process, cementing the deal’s position as an emblem of troubled Chinese investments overseas.

“Every time you say ‘China cross-border’, people think of PizzaExpress,” said one senior Chinese private equity executive. “It’s become a laughing stock — and bad for the reputation of China PE.”

PizzaExpress, Mr Zhao and Hony declined to comment.

As it seeks to resolve PizzaExpress’s problems, WeWork’s near collapse has inflicted further damage on Hony’s reputation. Hony and Legend Holdings led a $430m investment round in WeWork in 2016, and Mr Zhao became a member of WeWork’s board and later a consultant to its China business. SoftBank and Hony led a $500m investment round a year later.

With Mr Zhao acting as a consultant, WeWork expanded aggressively across the country, buying Chinese rival Naked Hub for $480m in cash and stock in 2018. Yet demand for office space fell in 2019, leaving some of its new areas of business virtually empty.

For example, in the western Chinese city of Xi’an, nearly 80 per cent of its desks were vacant, the FT reported in October. In the bustling start-up hub of Shenzhen in southern China, 65 per cent of its 8,000 desks were vacant.

WeWork declined to comment.

The poor performance of the business in China has left investors questioning how one of China’s private equity superstars could lead the group so far off course, according to people familiar with the matter.

“My impression is that Hony is not doing well these days,” said Liu Jing, a professor of accounting and finance at Cheung Kong Graduate School of Business in Beijing. “The economy has shifted to technology and they have lost their edge.”

Bytedance Inc. is considering setting up a global headquarters for its hit video-sharing app TikTok outside of China, part of continuing efforts to shake off its Chinese image, people familiar with the company said.

Singapore is one city being considered, the people said. Other possible locations include London and Dublin, with no American cities on the shortlist, one person said. TikTok currently doesn’t have a headquarters, although its most-senior executive is based in Shanghai and its main office, which runs U.S. operations, is in Los Angeles.

Senior executives at Beijing-based Bytedance—a startup valued at $75 billion, which owns numerous apps including TikTok—have been brainstorming ideas to rebrand TikTok as it comes under mounting scrutiny from U.S. lawmakers over national-security concerns. A headquarters outside of China would also bring TikTok closer to growing markets either in Southeast Asia or Europe and the U.S.

Known for its viral short videos of lip-syncing teenagers and funny pet antics, TikTok rose from obscurity to the top of U.S. app-store download charts in early 2019, and has also caught fire elsewhere including India and Japan. Global downloads for TikTok outstripped Facebook Inc. ’s Instagram and Snap Inc. ’s Snapchat in 2019, according to mobile-data aggregator App Annie. It had 665 million smartphone monthly active users world-wide in October, up 80% from a year earlier, App Annie said, with about 20 million of those users in the U.S.

The app’s spectacular rise has attracted attention from American senators, concerned that its Chinese roots could lead to it censoring content to appease Beijing. Bytedance’s 2017 acquisition of the startup Musical.ly, a move key to TikTok’s rapid success because of Musical.ly’s popularity in the U.S., is under review by the Committee on Foreign Investment in the United States for potential national-security risks.

The move to establish a global headquarters outside China has been discussed internally for months, one person said. However, the effort is “only accelerating because of the things happening in the U.S.,” the person added, referring to the recent scrutiny of TikTok there.

In response to questions, a TikTok spokeswoman didn’t directly address the search for a global headquarters, but said its teams around the world have increasingly been given more control over local operations.

“We have been very clear that the best way to compete in markets around the globe is to empower local teams,” she said. “TikTok has steadily built out its management in the countries where it operates.”

Locating TikTok’s headquarters outside China is unlikely to relieve pressures on Bytedance in the short term, said Peter Fuhrman, the Shenzhen-based chairman and founder of investment advisory firm China First Capital.

“That’s like dressing a panda in a business suit. It’s unlikely to fool anyone,” said Mr. Fuhrman, who described the firm as a victim of increased U.S.-China political tensions. “They’ll still be in congressional crosshairs and still subject to the same stringent content rules within China itself.” Bytedance has also faced pressures inside China from authorities seeking to restrict content deemed objectionable to the government.

In Singapore, the company has taken up two floors of prime office space in the city state’s central business district, according to real estate consultancy Savills Singapore. The 64,000-square foot space is in the same development housing investment advisory firm Rothschild & Co., and global banks such as UBS and Deutsche Bank. It first started operations in a WeWork office in downtown Singapore in December 2018.

Singapore is popular among foreign technology companies seeking a base in the region, with its large multilingual tech workforce and strong government support. It is the Asia-Pacific home to Alphabet Inc. ’s Google and Facebook, and Chinese technology giant Alibaba Group Holding Ltd. has a large presence there.

Southeast Asia is a top choice for Chinese companies looking to expand globally because of its cultural similarities, said Patrick Cheung, a founding partner at ZWC Partners and investor in Chinese tech startups.

A search on Bytedance’s hiring website on Dec. 23 showed 68 jobs posted for both Bytedance and TikTok in Singapore, the largest number of open positions for any city outside China. A fifth of those roles involved artificial-intelligence research as TikTok seeks to hire scientists in big data and natural-language processing. Bytedance uses AI to power some of TikTok’s recommendation algorithms. Other positions revolve around hiring staff to set content-moderation rules.

The global headquarters for another Bytedance product, a Slack-like corporate messenger app called Lark, is also in Singapore.

In London, where Bytedance was hiring for 38 positions including investment professionals and business-development staff, the company has made moves to poach talent. In October, TikTok hired Ole Obermann, a music industry veteran and former executive vice president at Warner Music Group, to head up its global music division.

Dublin stands out for pairing a favorable tax environment with a deep talent pool. Ireland’s capital is already the site of Facebook’s largest office outside of Menlo Park, and the European base for companies including Google and Twitter.

Bytedance acquired London-based AI music-composition startup Jukedeck this year. The startup’s founder and chief executive, Ed Newton-Rex, currently heads Bytedance’s new AI lab in Europe and wrote on LinkedIn last week that the team is hiring.

Bytedance launched TikTok in international markets in August 2017, modeling the service after its hit Chinese short-video app Douyin. Three months later, the company purchased Musical.ly, which started in China but grew popular in the U.S. It later merged the two apps.

The inability of Chinese financial regulation to contain financial excesses has put off many foreign investors who would otherwise want to put their money into the country, analysts said.

The key problem is that Beijing has not yet found a way to meet the large demand by small private sector businesses, investors and entrepreneurs for credit through legal and regulatory compatible financing channels, analysts say. Until it does, it will continue to contend with a series of quasi-legal and highly speculative financing channels to meet that funding demand that will pose additional risks to the nation’s financial system.As the examples of the rise and fall of the shadow banking systems and peer-to-peer (P2P) lending platforms show, creative Chinese financiers will continue to push against – and, if needed, circumvent – the bounds of law and regulation to create highly lucrative ways to meet the capital demands of small businesses and investors.

Foreign investors also want to take advantage of the strong need for credit in China, but uncertainty over the regulatory environment has put many of them off.

“There is huge demand and private equity funds in the West are beginning to lend. However, they are demanding sky-high rates due to the huge risk of lending to private corporates in China that often have unstable funding and during a time of slowdown in China. For these reasons, only the larger funds with good research teams will jump in with any strength,” said Andrew Collier, managing director at Orient Capital Research.

Oaktree Capital Group, one of the world’s largest alternative investment firms, told the South China Morning Post last year it would continue to invest in distressed debt and equities in China despite the growth of sour loans.China’s latest efforts to overhaul its deeply troubled billion dollar P2P lending industry are unlikely to dampen the appetite for credit or tackle broader issues of debt and financial risk in the world’s second largest economy, analysts said.

“China’s private sector is as capital starved today as it has been perhaps for 20 years or more,” said Peter Fuhrman, chairman and chief executive of China First Capital, an investment bank based in Shenzhen. “So there are creditworthy Chinese borrowers habituated to paying what by international standards quite high interest [rates]. The challenges remain not inconsiderable. At the top of the list is tougher government regulation on nonbank lending.”

Investors in Chinese online peer-to-peer lender Ezubao chanting slogans during a protest in Beijing after the platform turned out to be a giant Ponzi scheme. Photo: AFP

Beijing has taken steps to tighten regulation of P2P platforms since 2015 amid a spate of high-profile company collapses and scandals that have rocked the industry and trapped the savings of millions of people.

The internet-based lending platforms match private investors with individuals and small companies that want to borrow, providing a lifeline for entities that have trouble accessing the traditional banking system.

The number of mainland P2P lenders has shrunk significantly over the past four years, from some 6,000 platforms operating in 2015 to just 572 in October this year, according to P2P tracking portal Waidaizhijia. But although the industry’s reputation for risky lending has attracted greater regulatory oversight, P2P lending continues to play an important role in China’s economy.

“P2P has looked like an attractive way to get capital to smaller firms and to regions of the country that have low access to bank lending,” said Collier.

“However, most of the money is going into speculative investments in property, along with established securities such as the better grade corporate bonds. The regulators go back and forth on how much freedom they want to give to this sector.”

To tackle financial risks in the banking system, China has already taken a hard stance against shadow banking, which often involves many forms of off-balance-sheet lending from banks and nonbank financial firms, by rolling out new regulations to focus on supervising asset management businesses and products of commercial banks.

So far China’s effort seems to have made a significant difference to slowing the growth of the shadow banking industry. Rating agency Moody’s estimated that broad shadow banking assets shrank by nearly 1.7 trillion yuan (US$242 billion) in the first half of 2019 to 59.6 trillion yuan (US$8.4 trillion), the lowest level since the end of 2016.

Broad shadow banking assets declined only slightly to 64 per cent of nominal gross domestic production (GDP) at the end of June 2019 from 68 per cent at the end of 2018. But they were down 23 percentage points compared to the peak of 87 per cent of GDP at the end of 2016, Moody’s said.

Despite the crackdown by authorities, P2P lenders are likely to continue filling an important gap in the Chinese economy, according to analysts, although growth would be slower than during 2014 to 2018. Consultants Frost & Sullivan forecast P2P lending to grow in value to 2.17 trillion yuan (US$309.4 billion) by 2023, compared to 789 billion yuan (US$112 billion) in 2018.

“The explosive growth of the P2P industry since 2010 confirms there is huge and unmet demand for capital,” said Fuhrman. “Especially among smaller Chinese private sector companies.”

People protest over losses incurred in peer-to-peer investment schemes in front of the public security ministry of Dongcheng district in Beijing. Photo: Reuters

Part of the problem is that China’s banking system has not evolved to meet the demands of the private sector, which has been the engine of the country’s economic growth. Commercial banks prefer to lend to state-owned enterprises, which have implicit government backing, and are reluctant to lend to private companies because they are seen as being less creditworthy.

“In the past, non-performing [loans] were very high, so lending to small firms was discouraged,” Tian Guoli, the chairman of China Construction Bank, the country’s second biggest lender, said last year.

Squeezed between interest rates at P2P platforms that can be up to four times that charged by Chinese banks, and weak prospects of borrowing from large lenders, many small private companies have struggled to stay on top of debt.

The problem has been particularly acute through formal lending mechanisms such as the bond market. Between January and October this year, 93 private firms have defaulted on 278.7 billion yuan (US$39.6 billion) worth of Chinese bonds.

The overall default rate has now hit 1.51 per cent, a record high for the Chinese bond market since 2014, according to a report published by investment bank China International Capital Corporation last Friday. The default rate of a bond issued by a Chinese private company hit 11.82 per cent this year, nearly doubling from 6.18 per cent in 2018 and more than six times the rate of 1.89 per cent in 2017.

“While the overall liquidity in onshore bond market has improved, weak issuers will continue to face refinancing pressure over the next 12 months, because investors will remain risk averse towards them,” said Ivan Chung, an associate managing director at rating agency Moody’s.

The People’s Bank of China has called for risks associated with the P2P industry to be resolved by the first half of 2020, while some provinces like Hunan in central China have moved to ban the platforms altogether.

However, analysts said that given that much of China’s private sector is in need of cash to repay debt, the industry was unlikely to disappear, even amid growing regulatory scrutiny.

“It’s better to have greater transparency and regulatory oversight,” said Fuhrman. “The lending doesn’t stop, but the money becomes more expensive and risky for borrowers. This has a deadweight cost to the Chinese economy. The sooner the legitimate nonbank lending sector gets cleaned up and back in business the better it will be for China as a whole.”

Enterprise Ireland, the Irish government export development agency, held a conference in Dublin earlier this month to promote more intensive collaboration between businesses in Ireland and China, particularly in high-technology. I was invited to give a keynote speech, titled “China and Ireland: Building a Powerful High-Tech Partnership”. You can watch the first six minutes by clicking here.

Many thanks to my friend and amateur cinematographer Elaine Coughlan, an Enterprise Ireland board member as well as managing partner at Altantic Bridge Capital. Elaine has an outstanding track record as a tech entrepreneur and investor, in Silicon Valley, Ireland and China. I was also honored to be on a panel Elaine moderated.

Ireland is the only country in the European Union that has a trade surplus with China. The country stands to benefit greatly from Brexit, as international tech companies move European operations out of the UK and to the only EU Eurozone country with English as its native language. Two other big plusses: Ireland is a business-friendly place with about the lowest corporate taxation rates around.

Enterprise Ireland has a great team in China, led by Mary Kinnane, Tom Cusack and Patrick Yau. I met executives from two of Ireland’s success stories in China, Decawave and Taoglas.

HONG
KONG — Investment banks bringing companies to list on China’s new board for
technology startups are facing an unusual requirement: they will have to keep
some of the shares for themselves.

The
Shanghai Science and Technology Innovation Board marks a major experiment in
the reform of China’s capital markets.

Chinese
President Xi Jinping announced plans in November for a Nasdaq-style board for
young tech startups, and it is expected to be operational later this
year. It aims to attract young companies with fewer regulations and
reporting requirements and, unlike China’s main markets, there are to be no
limits on pricing and first-day trading movements.

Also
unlike the country’s existing boards in Shanghai and Shenzhen, companies that
list do not have to be profitable. In some cases, the tech board will not even
require companies to have generated revenue.

The
board signifies the realization of long-discussed plans to move from a system
where Chinese regulators carefully review every applicant and maintain tight
control over the flow of listings — leading to a backlog of hundreds of
companies waiting years for an official nod — to a more market-driven system
like that of major foreign exchanges.

The
requirement that underwriters take a stake in initial public offerings, first
flagged by officials last month, is an indicator of the authorities’ caution;
members of the Chinese financial community say the stakeholding requirement is
intended to insure underwriters bring only the companies in which they have
confidence to market.

“Having
lowered profitability requirements, it further makes sense to have sponsors
with skin in the game,” said Brock Silvers, managing director of
investment company Kaiyuan Capital in Shanghai.

Executives
with two Chinese financial companies said the minimum stake will be “a low
single-digit” percentage of the IPO. A lock up rule will block the
underwriters from selling their shares within two years of the IPO. The rules
have yet to be formally issued.

Victor
Wang, executive director of financial sector research at China International
Capital Corp., the country’s largest investment bank, said it is still unclear
how the stakeholding requirement will be shared among different investment
banks involved in an IPO. But the logic is, “if you don’t focus on quality
and recommend some low-quality companies, you own money will be lost,” he
said.

China
Merchants Securities, which is sponsoring two companies preparing to list on
the new board, declined to comment about the new rule. However, a local broker,
who had not heard of it before, said he was not surprised at the requirement.

“China’s
financial legal framework is not flawless and officials at the China Securities
Regulatory Commission cannot completely trust sponsors’ due diligence
work,” he said. “After all, there have been IPO frauds before. It is
no surprise if regulators want some level of assurance by having brokers to
share risks.”

Some
market observers are wary of the consequences, however.

“The
intention is a good one but once again investors are not being forced to make
their own decisions and analysis,” said Fraser Howie, a veteran broker and
co-author of three books on Chinese financial markets. “By forcing the
(investment bank) to come in on every deal, it effectively tells investors,
‘Don’t worry. You don’t need to think for yourselves’.”

Howie
also sees the rule as problematic for the banks. “The investment bank’s
job is to bring a company fairly to market,” he said. “I think this
(rule) conflicts with this. To me, they are creating a needless conflict of
interest and additional risk for the bank.”

The
burden of the requirement will favor larger investment banks, in the view of
Yang Yingfei, a partner handling IPOs at Baker McKenzie FenXun Joint Operation
Office in Beijing.

“Sponsors
that are relatively stronger overall will become more competitive, whereas
small and medium-sized securities firms may gradually lose the ability to
sponsor tech board enterprises,” she said. “The effect of
concentration in the sector will become conspicuous.”

Though
the Innovation Board’s approach is unusual, other market regulators have also
been wrestling with the question of how to ensure that underwriters take
responsibility for companies they bring to market.

Last
month, the Securities and Futures Commission of Hong Kong reprimanded and fined
UBS, Merrill Lynch, Morgan Stanley and the securities arm of Standard Chartered
Bank over their handling of IPOs.

UBS
received the heaviest penalty, a fine of 375 million Hong Kong dollars ($47.78
million) and a one-year suspension from sponsoring listings on the Hong Kong
market. The SFC said the bank had failed to confirm the existence of key
claimed assets and customers of China Forestry Holdings before bringing it to
market in 2009 and found problems with its work on two other IPOs.

China
Forestry raised $216 million in its IPO but its shares stopped trading in 2011
after its auditor reported the discovery of accounting irregularities.

Preparations
for the Shanghai Innovation Board have moved unusually quickly since it was
first mooted in November. The authorities are keen to have “unicorns”
— unlisted startups valued at $1 billion or more — list on domestic markets
rather than offshore. After several abortive efforts, they are hoping they have
created an attractive alternative at last.

“There
are certainly signals that the tech board’s IPO procedures will be more
market-driven, with a less onerous process of CSRC approval and
monitoring,” said Peter Fuhrman, chairman of investment bank China First
Capital in Shenzhen. “That should be a positive development.”

Nine
companies are set to launch on the new board as soon as June, but none are
unicorns; combined, they are expected to raise only about $1.6 billion.
Financiers say bigger startups are waiting for the board to work through its
initial launch pains before moving forward themselves.

One
Hong Kong-based banker who works with mainland Chinese companies said “a
lot” of his clients were waiting in the wings.

A
Chinese education company backed by U.S. investors including Kobe Bryant is
cracking down on how its Western teachers cover politically fraught topics.

VIPKid,
one of China’s most valuable online education startups, has put hundreds of its
mostly American teachers on notice for using certain maps in their classes with
Chinese students, and has severed two teachers’ contracts for discussing Taiwan
and Tiananmen Square in ways at odds with Chinese government preferences,
people familiar with the company say. Since last fall, teachers’ contracts
state that discussing “politically contentious” topics could be cause for
dismissal, according to one reviewed by The Wall Street Journal.

The
moves highlight the balance a Chinese company must strike in fulfilling global
aspirations while toeing Beijing’s line. Five-year-old VIPKid is currently in
talks to raise as much as $500 million in new funding from U.S. and other
investors that could value the company at roughly $6 billion, people familiar
with the fundraising said.

“A company must keep good relations with the government and ideology,” said Peter Fuhrman, chief executive of investment firm China First Capital . “But that can cause friction when you’re also courting foreign investors, expanding business overseas and employing a large American workforce.”

Beijing-based
VIPKid says it has more than 60,000 teachers in the U.S. and Canada who teach
English to more than 500,000 children ages 4 through 15, who live mostly in
China. Teachers work as independent contractors and can earn between $14 and
$22 an hour. They must have a bachelor’s degree, at least one year of teaching
experience and eligibility to work in the U.S. or Canada.

Curricula
are provided, and teachers give English-language instruction, sometimes using
geography or historical figures. VIPKid’s approach is consistent with maps and
materials in the Chinese education curriculum, which calls Taiwan a part of
China. Textbooks don’t mention the military’s suppression of the Tiananmen
Square pro-democracy demonstrators in 1989, and discussion of it is forbidden.

A
spokesman said VIPKid has “an elevated level of responsibility to protect the
safety and emotional development of the young children on our platform.” The
company expects teachers to understand cultural expectations, he said, adding
it had to “make a difficult decision” to terminate the contracts of “an exceptionally
small number of teachers” who “decided to ignore the needs of their students”
and “the preference of their parents.”

The
company’s actions have rankled some teachers. Typically, these instructors have
displayed maps of the world, including China, that they found on their own.
Starting last fall, hundreds began receiving emails or calls from VIPKid
stating their maps weren’t aligned with Chinese education standards, people
familiar with the matter said. Teachers who refuse to adhere to the map standards
could have their contracts terminated, after conversations with VIPKid.
Map-related dismissals haven’t happened, said a person familiar with the
company.

Will
Rodgers, a 26-year-old American teacher based in Thailand, said he discussed
Tiananmen Square twice during VIPKid lessons about famous Chinese landmarks.
First, he told a 12-year-old student “the Chinese government jailed and killed
many people just for protesting.” He then showed a 15-year-old student photos
and video footage of the protest, and his contract was terminated. Mr. Rodgers
said he doesn’t agree with VIPKid’s stance, but doesn’t blame the company for
ending his contract.

Another
American teacher’s contract was terminated earlier this year after he told
students that Taiwan was a separate country, according to people familiar with
his case. A third teacher received a call from VIPKid after telling a student
that Tibet, an autonomous region in China with a history of separatist
activity, is a country, during a lesson on China’s neighbors, according to a
person familiar with the matter. He was told on the call he should refer to
Tibet as part of China.

People
familiar with VIPKid say it monitors classes for missteps over political
content. Another person familiar with the matter said the company uses
artificial intelligence to determine material students find engaging and to
protect them from inappropriate behavior.

Some
teachers and VIPKid investors say that education from foreign teachers, even if
it is screened, can benefit students because they get exposed to other
cultures. Rob Hutter, a founder and managing partner of Learn Capital, an early
investor in VIPKid, said the company is trying to take a common-sense approach
by teaching uncontroversial content.

“No
matter what nation you’re teaching in, there are going to be things that we
need to be thoughtful about,” he said. “Even in American classrooms, there are
things you cannot discuss.”

“No matter what nation you’re teaching in, there are going to be things that we need to be thoughtful about,” he said. “Even in American classrooms, there are things you cannot discuss.”

Fundraising by
renminbi-denominated private equity groups in China plummeted 86 per cent last
year, squeezed by a tighter availability of credit and a slower initial public
offering market.

The fall —
revealed in a new report published on Friday — underlines how the Chinese
private equity market has gone into reverse from the boom times of a few of
years ago, when scores of new funds were launched and the country’s technology
companies attracted sky-high valuations.

Hundreds of small,
inexperienced Chinese private equity funds that rushed into investments in
technology and new economy companies have begun to suffer from a sharp
contraction in fundraising and tougher environment for exiting investments.

Private equity
houses raised about $13bn in renminbi-denominated funds in 2018, down about 86
per cent from the $93bn raised the year before, according to data compiled by
the consultants Bain & Co.

At the same time, small Chinese
private equity groups struggled to cash in on their investments in 2018. Sales
and initial public offerings worth less than $100m fell by about 64 per cent
last year compared to a five-year average.

“The level of
optimism and fervour for investing in the tech sector foreshadowed what we are
seeing now,” said Usman Akhtar, a partner at Bain & Co, referring to how
many small private equity houses are struggling to exit from investments at
expected prices. “It’s the start of this and it may take a few years to pan
out.”

The tightening of
credit in China is a broad trend with an impact far beyond private equity.
Banks, trusts and other sources of capital have been squeezed during China’s
attempt to slow the growth of debt.

So-called shadow banking has been an important source of funds for small private equity groups. Without these channels to fresh cash, many of the imperilled funds are simply shutting down, raising doubts over whether investors will be paid.

China’s woes are
mirrored across Asia where large private equity is sucking up most of the
available capital while also finding means to exit their investments, Mr Akhtar
said. Hong Kong-based PAG, which is run by former TPG and JPMorgan executive
Shan Weijian, raised a $6bn fund in November, following a more than $9bn fund
raised by Hillhouse, the Beijing and Hong Kong-based group.

Large exits of
more than $500m clearly diverged from smaller deals in 2018 by rising just over
a quarter on the year before.

Global demand for
Chinese technology IPOs started 2018 with a bang but quickly showed signs of
fizzling out, leading to a bottleneck of private equity seeking to exit their
investments.

Over the past year
several large, private equity-backed groups have been forced to scale back
their IPOs or delay them indefinitely.

Tencent Music,
which is partly owned by private equity, was last year targeting a $4bn float
but ended up raising only $1.1bn after several delays.

“The reality is
that all PE and VC investing in China has been an unhedged bet that the IPO
process in China would liberalise and institutional investors in US and Hong
Kong would show consistent, strong interest in Chinese IPOs. Neither is true,”
said Peter Fuhrman, chairman of China First Capital, a Shenzhen-based
investment bank.

I was honored and delighted to teach a class via video lecture at the University of Michigan Ross School of Business for third year, this time on the potential decoupling between the US and China, the competitive realignments as well as investment opportunities.

The lecture’s title: “Chimerica No More: Are China and the US Decoupling? How Will This Alter World Economics and Commerce?”

Thanks to Professor David Brophy and his class on Global Private Equity for the invitation an incisive questions.

China Merchants Group has been adopting new technology to resist foreign competitors for nearly 150 years. Founded in the 19th century, the company brought steam shipping to China so it could compete with western traders.

Now an arm of the Chinese state, CMG has been enlisted once again to buy up technology at a time when global private equity is vying for a share of China’s burgeoning tech market.

The country’s largest and oldest state-owned enterprise, CMG said this month it would partner with a London-based firm to raise a Rmb100bn ($15bn) fund mainly focused on investing in Chinese start-ups.

The China New Era Technology Fund will be launched into direct competition with the likes of SoftBank’s $100bn Vision Fund, as well as other huge investment vehicles raised by top global private equity houses such as Sequoia Capital, Carlyle, KKR and Hillhouse Capital Management.

“They have been very important to China in the past, especially in reform,” said Li Wei, a professor of economics at Cheung Kong Graduate School of Business in Beijing. “But you haven’t heard much about them in technology . . . It’s not too surprising to see them moving into this area, upgrading themselves once again.”

CMG is already one of the world’s largest investors. Since the start of 2015 its investment arm China Merchants Capital, which will oversee the New Era fund, has launched 31 funds aiming to raise a combined total of at least $52bn, according to publicly disclosed information.

But experts say little is known about the returns of those funds, most of which have been launched in co-operation with other local governments or state companies.

Before New Era, China Merchants Capital’s largest fund was a Rmb60bn vehicle launched with China Construction Bank in 2016. While almost no information is available on its investment activity, the fund said it would focus on high-tech, manufacturing and medical tech.

–

–

CMG’s experience investing directly into Chinese tech groups is limited, although it has taken part in the fundraising of several high-profile companies. In 2015 China Merchants Bank joined Apple, Tencent and Ant Financial to invest a combined $2.5bn into ride-hailing service Didi Chuxing, a company that now touts an $80bn valuation. It also invested in ecommerce logistics provider SF Express in 2013.

Success in Chinese tech investing is set to become increasingly difficult as more capital pours into the sector.

“Fifteen billion dollars can seem like a droplet in China,” said Peter Fuhrman, chairman and chief executive of tech-focused investment banking group China First Capital, based in Shenzhen. “We’re all bobbing in an ocean of risk capital. Still, one can’t but wonder, given the quite so-so cash returns from China high-tech investing, if all this money will find investable opportunities, and if there weren’t more productive uses for at least some of all this bounty.”

CMG, however, has always set itself apart from the rest of the country’s state groups. It is unlike any other company under the control of the Chinese government as it was founded before the Chinese Communist party and is based in Hong Kong, outside mainland China. Recommended Banks China Merchants Bank accused of US discrimination

The business was launched in 1872 as China Merchants Steam Navigation Company, a logistics and shipping joint-stock company formed between Chinese merchants based in China’s bustling port cities and the Qing dynasty court.

Mirroring its New Era fund today, it was designed to compete for technology with foreign rivals. At that time it was focused on obtaining steam transport technology to “counter the inroads of western steam shipping in Chinese coastal trade”, according to research by University of Queensland professor Chi-Kong Lai.

Nearly a century later, after falling under the control of the Chinese government, CMG became the single most important company in the early development of the city of Shenzhen, China’s so-called “window to the world” as it opened to the west.

Then led by former intelligence officer and guerrilla soldier Yuan Geng, the company used its base in Hong Kong to attract some of the first investors from the British-controlled city into the small Chinese town of Shenzhen, which has since grown into one of the world’s largest manufacturing hubs.

–

–

Its work in opening China to global investment gained CMG and Yuan, who led the company until the early 1990s, status as leading figures in the country’s reform era.

Today the company is a sprawling state conglomerate with $1.1tn in assets and holdings in real estate, ports, shipping, banking, asset management, toll roads and even healthcare. The company has 46 ports in 18 countries, according to the state-run People’s Daily, with deals last year in the sector including the controversial takeover of the Hambantota terminal in Sri Lanka and the $924m acquisition of Brazilian operator TCP Participações.

CMG did not respond to requests for comment. But one person who has advised it on overseas investments said the Chinese government was using it in the same way the company opened up Shenzhen to the outside world, helping “unlock foreign markets”.

John Pomfret is a former Post bureau chief in Beijing. Peter Fuhrman is the chairman and CEO of China First Capital, a China-based investment bank and advisory group.

–

Amid shifting noises and conflicting signals from the United States, confusion in Beijing over President Trump’s policies is giving way to a realization that China is now operating in a different, less welcoming world.

Accustomed to decades of American friendship, an unequal trading relationship and other policies that have combined to speed modernization, Chinese officials are beginning to come to grips with the notion, as one former senior Chinese banker wrote recently, that “Sino-American relations won’t continue to follow the same path they have for the past 40 years. Even those Americans who know China and are friendly to China have changed their views.”

The realization in China has come slowly. Trump’s election in November 2016 was treated as something of a godsend by many in Beijing who believed that relations with the United States would be eased by the accession to the White House of an amoral dealmaker. Trump might have railed against the United States’ trade deficit with China on the campaign trail, Chinese analysts noted, but once he was in office the American businessman’s transactional instincts would take over.

The Chinese had seen this movie before. Every U.S. president since Richard Nixon (with the exception of Barack Obama) had run on a platform that criticized the China policy of his predecessor. But all of them had returned to traditional China policy founded on a bet that if the United States at least tacitly supported China’s rise, China’s economic and political systems would end up like ours. When a U.S. administration complained loudly about Chinese deficits, as they often did, China would announce some big-ticket purchases of American products. Voila! Problem averted.

Now, however, as Li Ruogu, one of China’s most prominent bankers, who from 2005 to 2015 led China’s Export-Import Bank and played a key role in fashioning Beijing’s mercantilist economic policies, observed in a recent essay that America’s views on China “have undergone a fundamental transformation.” Across Democrats, Republicans and social strata, Li wrote, Americans “are all taking a hard line on China.”

Li, who recently chaired a meeting on Sino-U.S. relations, wrote that the reason Americans are changing their views is China’s failure to develop “along American expectations.” China is evolving into a nation that appears intent on challenging America’s military, America’s leading position in Asia and across the world, and even America’s ideology of free markets and a liberal political order. These developments are prompting Americans to consider for the first time, he concluded, “decoupling” America’s economy from China.

And America is not the only one.

Chinese policymakers have watched with increasing alarm as the rich world has become unusually united on China, less welcoming to Chinese investment and approaching zero tolerance for what’s seen as non-reciprocal trade relationships. We see this most clearly at the World Trade Organization, where China’s push last year to be upgraded to “market economy status” was blocked by a united front of the United States and the European Union.

It’s also reflected in work done in Germany to restrict China’s attempts to buy advanced German technology, mirroring stricter controls by the Treasury Department’s Committee on Foreign Investment in the United States. Chinese firms used to buy, on average, one German firm a week, according to German officials. Not any longer.

The concern expressed by Li and other leading Chinese is significant because it belies the theory, popular among some in Washington, that the United States lacks leverage over China. Indeed, in his essay Li pondered the significance of a potential “decoupling” of China’s economy with that of the United States.

“We still don’t have an economy that can separately compete with America’s,” he acknowledged. Many of China’s successes as the world’s top trading and manufacturing country would “take a drastic hit” in the event of a full-scale trade war with the United States, he predicted. Oil and semiconductor markets, he noted, are “still basically controlled by the United States.”

The economic risks for China were made apparent when the Trump administration prohibited Chinese telecom firm ZTE from purchasing any U.S. exports for seven years for breaking U.N. sanctions and doing business with North Korea and Iran. Just three weeks after the Commerce Department issued the ban in April, ZTE, which relies on American suppliers such as Qualcomm and Lumentum for about one-third of its components, announced that it would be suspending operations. In a few weeks, one the world’s largest telecoms and mobile phone companies, and a pillar of China’s state-owned high-technology sector, was brought to its knees.

ZTE may in the end get a reprieve, but to many Chinese, the ZTE case brought into stark relief China’s high-tech dependence on the United States. Reports now indicate that the Justice Department is investigating whether another, much larger and far more important Chinese telecom company, Huawei, also violated U.S. sanctions against Iran.

As the ZTE case unfolded, Chinese President Xi Jinping ordered Chinese companies to grasp the “historic opportunity” to develop China’s own high-tech manufacturing, to develop products and intellectual property as dominant as those now sourced from the United States. Tens of billions of dollars in new government investment and subsidies are on their way. In April, Xi observed that the “unprecedented challenges” faced by Chinese chip-makers actually amounted to “unprecedented opportunities” for them to seize the global lead in chip technology.

While patriotic chest-thumping might rally the troops, so far China has slammed into roadblocks trying to achieve semiconductor parity with the United States. This may be a problem that doesn’t yield to Chinese cash, to technocratic guidance or to the applied intelligence of so many smart Chinese engineers. There are other fundamental aspects that make it hard for China to achieve greater high-tech self-sufficiency, starting with lax protection of intellectual property and a reliance on technologically backward and monopolistic state-owned enterprises, both in chips and the specialized equipment used to make them.

With Internet search, e-commerce and social media, China’s go-it-alone approach has worked out well, nurturing domestic private sector giants such as Tencent, Alibaba and Baidu. But these firms, truth be told, are also trapped by the very environment that made them successful. All three have stumbled badly in efforts to expand outside the country. And semiconductors are a very different story than online chat or shopping. Chips are upgraded at a furious pace, in tune with global demand, and if anything, the gap between the best of China and the best of firms such as Intel, Qualcomm, Apple and ARM is as large as it ever was.

In his essay, Li said he was optimistic that the Chinese Communist Party would be able to weather its stormy relations with the United States. But he cautioned those in China urging a hard line against the West. “The most important thing,” he concluded, “is to choose the kind of path that is more in line with the needs and the future of China’s development.”

By choice as much as duress, China will move toward greater economic and technological self-reliance. Can China become equal in those spheres? Few questions loom larger in China’s future, or ours.

When Google launched its email service in 2004, only people who had been invited to join the network could open Gmail accounts. The invite-only system made Gmail appear exclusive, so naturally more people wanted in. But it wasn’t a marketing ploy. Gmail had to limit membership because it didn’t have sufficient infrastructure to provide the service for everyone.

When OnePlus, a fast-growing Chinese smartphone brand, debuted in 2014, it adopted a similar tactic. Co-founder Carl Pei explained: “The invite system allowed us to scale our operations and manage our risks to help us grow more sustainably.” Essentially, it meant the four year-old company avoided overstocking. But, as with Gmail, by keeping the phone ‘exclusive’, it helped generate buzz.

This week OnePlus launched its seventh iteration, the OnePlus Six. Although it ditched the invite-only sales system in 2016, the company still keeps tight control over its distribution, forcing most purchases to be made online. But in India, where OnePlus made 35% of its total $1.4 billion in sales in 2017, the company has opened 10 physical stores to help sales and aftercare.

Vikas Agarwal, general manager at OnePlus India, claims OnePlus is now the “biggest Android premium smartphone brand” in the country. According to Counterpoint Research, the third and fourth most popular brands in India last year were Vivo and Oppo. Despite being competitors, the three brands are all linked to one man: Duan Yongping, the founder of BBK Electronics.

BBK (or Bu Bu Gao) was set up by Duan in 1995. It was the second household name Chinese brand Duan has created.

Born in 1961, Duan joined Zhongshan Yihua Group in Guangdong province in 1989 as the manager of a small factory. He used his position to establish a unit called Subor, which produced video game consoles in competition with Japan’s Nintendo.

The most memorable product made by Subor was an educational console, which featured a computer keyboard with ports for data cartridges and a couple of adjoining game controllers. The cartridges stored video recorded lessons to enable students to learn the English language by responding to prompts using the controllers.

The cheap console gave many young Chinese an introduction to computing and its popularity was reflected in Subor’s finances. When Duan joined Yihua it was Rmb2 million in debt, but by 1995 annual profit had exceeded Rmb1 billion ($157 million).

Despite the success Duan was only earning a meagre salary. He had lobbied Zhongshan Yihua to spin off Subor and give him a stake in the new enterprise, but he was rejected. It became a very public business dispute. The outcome: Duan left and founded BBK, taking a few promising team members with him.

Given his frustrations at Subor, Duan made sure he carved out a sizeable 70% stake in BBK for himself. The company began producing audio-visual products such as VCD and DVD players.

In 1999 and 2000, Duan became the highest bidder on state broadcaster CCTV’s annual auction of its prime-time advertising slots, splashing out Rmb300 million. The huge gamble paid off. BBK became a household name and subsequently the leading maker of VCD players.

Duan was quick to see the potential of mobile phones and later the mobile internet. BBK’s Oppo and Vivo were initially derided as cheap imitations of Apple’s iPhone. But through smart marketing the pair became amongst the country’s best-selling smartphones (see WiC358 for our analysis of Oppo’s rise). In 2016, sales of the two brands actually bumped the iPhone out of China’s top three positions.

More than a decade earlier Duan had spoken to Harvard China Review about his business philosophy: “I am never afraid to follow others. Actually my business has never been an initiator of an industry. Instead, we analyse vulnerabilities of the leading companies in a certain industry and then try to establish our own stronghold.”

This ethos likely contributed to the establishment of OnePlus, which was co-founded in 2013 by Oppo’s former vice president Pete Lau. The company drew comparisons to Xiaomi at its launch, because both produced low-price premium smartphones with sales made exclusively online.

Lau was an early BBK employee, joining in 1998. According to Medium, Lau paid a visit to his mentor and former boss Duan to seek advice before initiating OnePlus. Duan’s pedagogical stature is one of the many reasons he’s sometimes dubbed “the Chinese Warren Buffet” and why Lau looked for his backing.

Peter Fuhrman, founder and chairman of Shenzhen-based advisory firm China First Capital, has followed Duan’s business career and admires what he has achieved. As he points out, “No one has succeeded for so long, or so well, in such a brutally tough global industry as Mr Duan. He’s earned a spot among the business immortals of the past century. Only he and Samsung managed the transition that left Blackberry, Nokia, Sony Mobile, Motorola as roadkill. He rose to the top originally by making simple, cheap feature phones, then more or less chucked that whole business away to create and back three new companies for the smartphone industry, Oppo, Vivo and OnePlus. All are doing outstandingly well. Their success is built on another aspect at which Duan excels as few, if any ever have – creating a hugely-efficient, high-quality manufacturing base in Dongguan turning out phones for all three, backed by what may well be the world’s most efficient global electronics supply chain.”

Duan is evidently happy to be compared with Buffett. In 2006, he paid $620,100 to have lunch with the Sage of Omaha. Duan told media after the charity luncheon, “I had already learned a lot from Buffett, so I was hoping for a chance to thank him.”

Having emigrated to the US in 2001, Duan has been taking a more active interest in managing his own money, rapidly growing his equity portfolio.

An initial investment was a $2 million cash injection into NetEase. The firm had almost gone bust following the dotcom crash and its share price had plummeted to just $0.80. According to China Investor, Duan determined that the company still had potential, so he took the plunge. Within two years he’d made a return of 100-times on his investment.

Duan also made a large investment in GE after its shares slumped following the 2008 financial crisis, buying shares at $6 each and quickly doubling his money.

His steely nerves ensured he held onto his stake in Kweichow Moutai when the baijiu maker’s stock price halved in 2014. Duan entered at Rmb180 in 2012; today Moutai trades at over Rmb700.

“The money I’ve earned on the back of investments is so much more than what I earned from 10 years of doing business,” he surmised. According to the latest Hurun report, Duan is now worth $1.3 billion – but there are some in China who think his wealth could be many multiples of that Hurun estimate, and he might even be one of China’s richest men.

It’s hard to know: many of his investments aren’t public. But in Chinese business circles few would disagree that he is shrewd at finding and backing talent.

For instance, also present at the 2006 Buffett lunch was Colin Huang Zheng, who would later found Pinduoduo, one of China’s 164 unlisted unicorns. The e-commerce platform has been described as the fastest growing app in the history of the Chinese internet (see WiC404), and Huang has long been viewed as a key Duan protégé.

“He is above all a great manager and motivator of people, of putting strong people in leadership positions and then letting them get on with their business, with minimal intervention from him at the top,” comments China First Capital’s Fuhrman. “From hands-on executive to hands-off semi-retired chairman, Duan has excelled across his career in very different roles.”

Despite his successes in the business and investment fields, it seems Duan would rather be remembered for his altruism, claiming “Charity is my business, investment is my hobby.” In 2005, Duan and his wife established the Enlight Foundation, through which they’ve provided scholarships to their respective alma maters. In 2006, Duan and NetEase founder Ding Lei made a $40 million donation to Zhejiang University.

But surprisingly the two people who likely won’t be receiving handouts from the magnate are his children. According to Phoenix News, Duan has said: “So much of my happiness in life has come from the process of earning my wealth. I don’t want to deny my children that same happiness.”

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About

This blog started in 2008. Its purpose then and now is to evaluate and highlight key trends in China's private equity industry, M&A and capital markets.
Investing in China remains both one of the supremely attractive as well as most challenging endeavors for institutional investors, global corporations, private individuals.
We are an international investment bank and advisory firm based in China and committed as few others are to the continued strength, dynamism and globalization of China's economy, particularly its private sector entrepreneurial companies and forward-thinking state-owned enterprises.

We invite you also to visit the Chinese-language blog, which digests our articles and commentaries published in the Chinese media on China’s economy, SOE sector, capital markets, technology, entrepreneurship. 中国股权投资: www.chinaprivateequityblog.com